A Tough Macro Environment Is Masking Some Improvement At PolyOne

It has been a while since I've written on PolyOne (NYSE:POL), and I wasn't all that fond of the valuation on this specialty chemical company back in that last article in 2013. Since then, the share's performance has been about half that of the S&P 500, though somewhat less disappointing relative to other chemical companies like Schulman (NASDAQ:SHLM), Clariant (OTCPK:CLZNY), and Westlake (NYSE:WLK).

Performance has been hurt not only by execution issues in the acquired Spartech business, but also a weakening macro environment, and this most recent quarter was the first in over two years to show year-on-year revenue down (though organic growth was still negative absent an adjustment for energy-based pricing).

The investment prospects for PolyOne are more interesting to me now. I like specialty chemical companies, and I think PolyOne has a lot going for it with an array of value-adding capabilities. I also like that management has been shoring up some weaknesses and continuing to push the company in the direction of "value over volume" and toward a model that could conceivably produce double-digit ROICs on a more consistent basis.

Valuation isn't a slam-dunk, but I've learned that it is worth paying attention when quality specialty chemical companies look reasonably priced on a discounted cash flow basis, as the market is often willing to pay premiums to that value in healthier economic times.

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A Tough Macro Environment Is Masking Some Improvement At PolyOne